Tuesday, March 31, 2015, 5:03 p.m.

Judge overrules debtor's objections in vegetable case

A bankruptcy judge overruled the majority of objections made by Veg Liquidation, formerly known as Allens Inc., to $1.9 million in claims made under the Perishable Agricultural Commodities Act by a Pennsylvania company that provided the vegetable company with produce.

In an order Thursday, Judge Ben Barry overruled Veg Liquidation's objections that D&E Farms improperly included freight and fuel charges and that it breached its fiduciary duty to Veg Liquidation by claiming those expenses. Barry did uphold Veg Liquidation's objection that the 18 percent interest D&E charged was too much and that 17 percent was the proper amount allowed under Arkansas law.

The Perishable Agricultural Commodities Act regulates the sale of fresh and frozen produce to avoid unfair trade practices and ensures that sellers are paid in a timely manner. Valid claims are paid dollar for dollar in bankruptcy cases and are moved to the head of the line for payment, even ahead of secured debt.

In June, Veg Liquidation's special commodities act counsel, Jason Klinowski of Chicago, argued regulations required D&E Farms to back out "contemplative expenses" from its bill, including costs for fuel, freight, storage and harvesting, even though Veg Liquidation never paid those costs.

At the time, Greg Brown, who represented D&E Farms, told the court the objection had no legal basis.

Barry ruled that some of the wording in the regulation is ambiguous and contradicts the intent of the statute, which he said is to ensure that valid claims are paid.

Klinowski said several of the other objections to claims made under the act had a similar foundation based on the wording of the regulation, so he expected the judge would overrule them in the future.

A phone call and email sent to Brown were not returned Friday afternoon.

Barry is still considering objections by Veg Liquidation to nearly $10 million in other claims made by several of the company's suppliers under the act. A filing by Veg Liquidation shows there is a total of $19.36 million available to pay for all claims allowed under the act.

In late October, the canned-vegetable company filed for Chapter 11 protection in U.S. Bankruptcy Court for the Western District of Arkansas. The case has recently been shifted to Chapter 7.

Sager Creek Acquisition Corp. bought the assets of Allens Inc. at auction in February with a winning bid of $123.8 million. The total value of the deal is just less than $160 million. The new owners changed the name of Allens Inc. to Sager Creek Vegetable Company in July.

Sager Creek Vegetable Co. employs more than 1,000 people across its U.S. operations. In addition to its Siloam Springs plant and other Arkansas holdings, the company has operations in Georgia, North Carolina and Wisconsin.